Theory of Consumer Behavior

Factors of Production

Look around yourself. What will you see? Tables, chairs, other furniture, doors, television, wardrobe, and so many other manmade things. Does it ever come to your mind how are these things made? How is the iron chair made? How is the wooden table made? You know that wooden furniture is made up of wood. How can one get wood? Of course from trees. The iron chair was first a piece of iron. But how is that chair gets its shape? These woods and iron are some factors of production. These are the raw materials which finished themselves into final goods like chairs and tables. In this section, we are going to know the factors of production.

Suggested Videos

previous arrow
next arrow
previous arrownext arrow


It is a process of combining various inputs to make something for consumptions. Production is an outcome of economic activity. For making or producing something, we need some tangible and intangible materials.

These materials are the various factors of production. Consider a simple example of paper crafting. To make an origami, we need paper, money to buy it, and the most important technique of folding.

Let us understand what we mean by the factors of production and their types.

Factors of Production

Anything that helps in production is the factor of production. These are the various factors by mean any resource is transformed into a more useful commodity or service.

They are the inputs for the process of production. They are the starting point of the production process. Factors of production are the parameters which affect the output of production.

Types of Factors of Production

Factors of production have been categorized into four types.

factors of production



It refers to all natural resources. All natural resources either on the surface of the earth or below the surface of the earth or above the surface of the earth is Land.

One uses the land to produces goods. It is the primary and natural factor of production. All gifts of nature such as rivers, oceans, land, climate, mountains, mines, forests etc. are land.

The payment for land is rent.

Characteristics of Land as a Factor of Production

  • The land is a free gift of nature.
  • The land has no cost of production.
  • It is immobile.
  • The land is fixed and limited in supply.

Types of Land

  1. Residential
  2. Commercial
  3. Recreation
  4. Cultivation
  5. Extraction
  6. Uninhabitable


All human effort that assists in production is labour. This effort can be mental or physical. It is a human factor of production. It is the worker who applies their efforts, abilities, and skills to produce.

The payment for labour is the wage.


  • It is a human factor.
  • One cannot store labour.
  • No two types of labour are the same.

Types of Labor

  1. Unskilled
  2. Semi-skilled
  3. Skilled
  4. Professional


Capital refers to all manmade resources used in the production process. It is a produced factor of production. It includes factories, machinery, tools, equipment, raw materials, wealth etc.

The payment for capital is interest.


  • Capital is a manmade factor of production.
  • It is mobile.
  • It is a passive factor of production.

Types of Capital

  1. Fixed
  2. Working
  3. Venture


An entrepreneur is a person who brings other factors of production in one place. He uses them for the production process. He is the person who decides

  • What to produce
  • Where to produce
  • How to produce

A person who takes these decisions along with the associated risk is an entrepreneur.

The payment for land is profit.


  • He has imagination.
  • He has great administrative power.
  • An entrepreneur must be a man of action.
  • An entrepreneur must have the ability to organize.
  • He should be a knowledgeable person.
  • He must have a professional approach.

Read about the Characteristics of Entrepreneurship in detail here.

Solved Examples on Factors of Production

Q. Problem: All things used in producing goods, services, buildings, ideas are

  1. Natural resources
  2. Capital resources
  3. Resources
  4. Human Resources

Solution: iii. Resources

Q. Problem: Which of the following is one of the three economic questions?

  1. In what order should I produce
  2. What colour should I produce?
  3. How many should I produce?
  4. What should I produce?

Solution: iv. What should I produce?

Share with friends

Customize your course in 30 seconds

Which class are you in?
Get ready for all-new Live Classes!
Now learn Live with India's best teachers. Join courses with the best schedule and enjoy fun and interactive classes.
Ashhar Firdausi
IIT Roorkee
Dr. Nazma Shaik
Gaurav Tiwari
Get Started

One response to “Meaning and Concept of Utility”

  1. Adish says:

    Hello, author and date of content published please?

Leave a Reply

Your email address will not be published. Required fields are marked *

Download the App

Watch lectures, practise questions and take tests on the go.

Customize your course in 30 seconds

No thanks.